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Thursday, April 17, 2014

Foreigners Transfer Money to Greece and Greeks Transfer it Abroad --- Strange!

"January-February 2014: Under portfolio investment, a net outflow of €2.7 billion was recorded, mainly as a result of a rise in residents’ investment in foreign Treasury bills and a decline in non-residents’ holdings of Greek government bonds and Treasury bills. This development was partly offset by an inflow for the purchase of Greek shares by non-residents, as well as by a decrease in residents’ holdings of foreign bonds. Under “other” investment, a net inflow of €2.7 billion was recorded, mainly due to non-residents’ increased holdings of Greek deposits and repos" - Press Release Bank of Greece.

This is a curious statement by the Bank of Greece because one could interpret it as meaning that, while Greeks are smart to put their money outside the country, foreigners are dumb and put it into Greece. 

Here is how portfolio investments work: suppose you have 10 TEUR on deposit with Eurobank. One day, you go to your local Eurobank branch, where you also have a portfolio account, and ask that they take your 10 TEUR from the deposit account, buy German bonds for 10 TEUR and put them in your portfolio account. You may think that your money is still with your local Eurobank branch but it isn't! Eurobank has, on your behalf, transferrred the money abroad to buy German bonds. If Eurobank goes bust and/or if Greece exits the Euro, it does not concern you. You still own German bonds denominated in Euros. They just happen to be held in a portfolio account at your local Eurobank branch and the assets in that account are your property and not the bank's.

Footnote: from 2011-2013, Greek residents did the above to the tune of more than 50 BEUR. They did not transfer money to any Swiss bank account. Instead, they simply moved money from a deposit account to a portfolio account at a Greek bank. This little trick made them immune against any bank bankruptcy or Grexit.

From January-February 2014, Greek residents moved 2,7 BEUR from their deposit to their portfolio accounts at Greek banks. Put differently, they transferred money abroad, possibly without knowing it. Foreigners did the reverse during this period: they transferred 2,7 BEUR to Greek banks. Perhaps that is a coincidence; perhaps something could be read into it.

My own experience has been that it is never smart to do the opposite of what those are doing who are 'in the know'. If I saw Greeks moving money outside the country, I would think twice before I moved money into Greece.

2 comments:

  1. There are a lot of foreigners living in Greece, including myself, who have been unable to earn a decent living since the crisis. We are surviving on family support, in order not to have to leave Greece and make a new life elsewhere. I know of people from Iraq and Albania, whose family send money to Greece.

    Yes, Greeks with saving are moving them out of Greece. They saw how the EU behaved with Cypriot banks and are fearful. I personally have advised Greek friends to take their money out: the likelihood is not another "bail-in" since this would yield little from accounts over 100,000 euros, but a tax/ Accounts of under 100,000 euros are protected from total loss, but not from extraorinary taxes. I expect Samaras to start some malakies of this sort, soon.

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  2. With the current state of the economy, they want to ensure they are getting the most out of their money, the Greeks probably think by moving it out of Greece the money will be safe, as you said from any bank bankruptcy,

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